ISLAMABAD: Amid hiccups in the finalisation of financial arrangements for Liquefied Natural Gas (LNG) imports, a management delegation of Qatargas (QG) is expected to visit Islamabad next week for assessment of on-ground situation before committing a long-term deal.

The finalisation of LNG supply chain has become all the more important given the fast approaching winter when domestic gas supplies would be facing extreme shortages because of surge in consumption levels in the residential sector.

Senior government officials told Dawn on Monday that a senior management team of the QG has volunteered a visit to Islamabad starting Aug 26. They have some other clients in waiting and want to have a fair assessment of Islamabad’s preparedness for a long-term deal, he said.

Pakistan, he said, had so far been unable to complete condition precedent for a long-term contract for import of LNG for 15 years.

“The situation is complex on ground,” he said, adding that the basic requirement for opening of standby letter of credit (SBLC) to enable LNG import. Secondly, the two regulators — Oil and Gas Regulatory Authority and National Electric Power Regulatory Authority — have not yet finalised prices for sale of LNG and resultant power purchase price.

On top of that, the government has not yet put in place payment mechanism for LNG supply chain. As a consequence, the three major stakeholders to the LNG supply chain — Sui Southern Gas Company, Sui Northern Gas Pipelines and Pakistan State Oil — have not yet signed a tripartite agreement. Without this tripartite agreement, the gas price agreement between a Pakistani entity (Pakistan State Oil) and a foreign firm (QG in this case) cannot be inked, said the official.

So far, PSO has supplied over Rs30bn worth of LNG imported on a spot purchase basis to SSGC for onward sale to power plants, fertiliser units and CNG stations, but has gotten received payments for about Rs6bn due to pricing difficulties.

As if that was not enough, a couple of officials have slipped out abroad following inquiries launched by the National Accountability Bureau into the LNG terminal and imports. In response to questionnaire from NAB, the SSGC is reported to have absolved itself of any responsibility in the award of terminal or LNG import contracts and has passed the responsibility to Interstate Gas Company.

The sources said PSO had asked the Ministry of Finance (MoF) to divert power sector subsidy to an Offshore Escrow Account which could be used for making payments to international suppliers. The MoF had agreed in principle to divert subsidy for LNG imports but declined to materialise it in the absence of pricing and legal shortcomings.

These sources said the temporary LNG imports have led to creation of circular debt. In the latest LNG shipment, the foreign shipper had to pay penalties at Pakistani ports and declined to be available in future.

The sources said the foreign ship was larger than the prescribed 40-feet ship previously allowed at Port Qasim for which a special notification had to be issued but this caused over five days of delay in berthing. The resultant boiling out of the LNG led the terminal operator Engro to oppose its processing for being off-specification as the LNG temperatures increased. Some more days were lost and the shipping company had to pay over $500,000 in penalty before leaving port on August 16.

The petroleum ministry has been describing the power sector as a major obstacle to signing a long-term contract for import of liquefied natural gas (LNG), despite the fact that it would lead to an annual saving of $1 billion for the sector. But power sector players find it difficult to provide guarantees for payments in view of huge circular debt that keeps their bills blocked for years.

Petroleum Minister Shahid Khaqan Abbasi told a parliamentary panel last month that the power sector had neither provided standby letters of credit nor finalised payment mechanism and these were the only two issues hampering the signing of a long-term contract with Qatar. The situation has not changed since then.

Pakistan needs at least 45 days to actually start receiving LNG under long-term supply contract after completion of all formalities including SBLCs, payment mechanism and pricing.

Published in Dawn, August 18th, 2015

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